Fixing the giant: Can Nigeria’s textile industry regain lost glory?

In May, an Indian trade mission, led by Mr. Ravi Bangar, the deputy permanent representative of India to the World Trade Organisation (WTO), paid a visit to Mr. Jubril Martins-Kuye, Nigeria’s Minister for Commerce and Industry. One of the major issues they discussed was the possibility of India helping Nigeria to revitalise its textile industry. Shortly after the meeting, the minister directed both the National Cotton Association of Nigeria and the Nigeria Textile Manufacturers’ Association to put a paper together, giving specific details on how the government could help the textile industry.

This paper, it is presumed, will form the basis of what the involvement of India in the sector would be. This has not yet been done, but it seems like a good time to pause and examine what led to a situation in which an industry that was the largest employer in the manufacturing sector of the country became one that desperately needs help. It is by doing this exercise that one might begin to think of what could be done to bring it back from the brink.

The not-so-rosy past
The first modern textile mill in Nigeria, Kaduna Textile Mill, was started in 1956 in Kaduna, northern Nigeria. The primary reason for setting up the mill was to process the cotton that was being produced in the northern part of the country. By the 1970s and the 1980s, the Nigerian textile industry had grown to become the third largest in Africa.

A report by the United Nations University (UNU) states that in 1987, there were 37 textile firms in the country, operating 716,000 spindles and 17,541 looms. This was the golden period of Nigeria’s textile industry. Between 1985 and 1991, it recorded an annual growth of 67%, and as at 1991, it employed about 25% of workers in the manufacturing sector. Although all this is good news, it needs to be viewed with the structure of the global textile trade in mind: it was the period of the Multi Fibre Agreement (MFA).

The MFA was a system of quota that could be imposed by developed countries on the amount of textile products developing countries could export to them. This was interpreted largely as a protection of the United States’ textile industry from China. The MFA was replaced by the WTO’s Agreement on Textiles and Clothing (ATC) in 1995. Under these agreements, the textile industry was brought into full compliance with the General Agreement on Tariffs and Trade (GATT) rules, and all quota restrictions were rolled back by January 1, 2005. The quota restrictions were not applicable to some countries, one of which was Nigeria.

In the 1980s and early 1990s, Nigeria’s textile industry received a lot of foreign investment. The UNU report for instance notes that in 1991, two companies that its report focused on were either directly owned by Indian investors or were subsidiaries of Indian-owned companies: Aflon Nigeria PLC was owned by Afprint Nigeria Plc, which was in turn part of the Indian Kewalram/Chenrai group. Spintex Mills (Nigeria) Limited was also an Indian company. During the same period, United Nigeria Textile Plc (UNTPLC), a Kaduna-based company that was established in 1964, was bought by CHA Textiles, a Chinese company. It has been suggested that the reason the number of textile companies in Nigeria grew during this period was because Nigeria was not under the MFA quota restrictions.

Decline of the industry
In an interview with Nigeria’s Daily Independent newspaper, the first Nigerian Group Managing Director of Kewalram/Chanrai, Mr. Victor Eburajolo, blamed the decline of the textile industry on the hasty accession of Nigeria to the WTO in 1995. According to him, in accordance with WTO rules, Nigeria had to remove any protection of the local textile industry. He argued that it would have been better for the country to secure special arrangements with the WTO, such that the local textile industry would be protected until it was surer on its feet.

While there is certainly some truth to this, there were other factors that contributed to the decline of the industry. One of these was the ending of the MFA and the accession of China to the WTO, both of which happened within four years of each other.

Until 2005, when the MFA ended, there was a quota on the amount of textile that China could export. A report on a Chinese website, written in November of 2001, a month before China joined the WTO, discussed the benefits of membership for China. It says that Chinese textile manufacturers believed that China’s accession to the WTO would come with opportunities for the industry. One of this would be that China’s membership would encourage foreign companies to set-up shop in China. Through that Chinese companies would be able to learn ‘advanced designing, marketing and management’. This, it was suggested, would be part of the preparation for the removal of the import quota on Chinese textile products, under the MFA.

As we now know, this has proved to be quite an astute observation. Looking back, it would seem that between 2001 (when China became a member of the WTO) and 2005 (when the quota system was removed) Chinese companies were able to hone their skills in textile production and international marketing.

Before the MFA expired, the United States introduced the African Growth and Opportunity Act (AGOA), an initiative that opened up the American market to African countries. While there are many things to complain about concerning AGOA, one could observe that before the expiration of the MFA, textile products were one of the fastest growing African exports to the US. However, by the time the quotas were lifted, Chinese exports increased rapidly and proved to be stronger competition than African companies could handle.

According to a presentation made to the US-China Commission by Mr. Princeton Lyman, a former United States ambassador to Nigeria, African countries suffered from the increase in exports from the Chinese textile industry on two fronts. Cheap exports from China were undermining local textile industries. At the same time, the growth of Chinese exports to the United States was making it almost impossible for African countries to compete with China for the US market.

The Nigerian textile industry was one of those that suffered especially because of the first point. When I spoke to traders in the popular Dantokpa Market in Cotonou, they said that Nigeria used to supply them with good quality wax-resist textile, popularly called ankara in Nigeria. However, in the early 2000s, cheap imitations of these products were being produced and exported from China to West Africa. Some would even be slapped with Made-in-Nigeria or Made-as-Nigeria labels and then sold in Nigeria.

These days, although there is a ban on the importation of textile products into Nigeria the products still manage to find their way into the country. They are first imported into Benin or Togo, from where they would either be taken to Niger before being smuggled into Nigeria through its northern borders, or they would simply be smuggled directly into the country through its borders with Benin. Some of the people I talked to in Cotonou say that several containers of Chinese products are regularly smuggled into Nigeria through Benin.

This should not in any way be seen as an indictment of China, but as a failure of policies on the part of the Nigerian government. For instance, part of what this has shown is that a country that cannot police its borders should not rely, almost exclusively, on import prohibition as a trade policy instrument. Apart from this, even in the early 1990s, it had become apparent that there were some problems with the Nigerian textile industry.

The UNU report pointed to the difficulty of access to finance. Many of the companies could not afford to take loans at the very high lending rates (sometimes more than 45%) in the country. It was also difficult to get foreign exchange and deal with inflation problems, in a situation where a lot of the cotton and other raw materials used were imported. There was also the poor state of transportation, power and other infrastructure that were needed by the industry. All these factors contributed to the death of the industry.

Resuscitative measures
Shortly before the end of the term of Nigeria’s former president, Olusegun Obasanjo, there was an initiative by the federal government to raise 70-billion naira through bonds of five-year duration. The money was named the Textile Development Fund, and it was to be lent to cotton growers and textile manufacturers through the Nigerian Export Import Bank (NEXIM). However, in July last year, it was reported that the United Bank of Africa, which was to help the federal government to market the bonds, was unable to do so.

This has been the state of affairs until the flurry of activities and the long list of commentaries that have followed the visit of the Indian trade delegation. First of all, I think it is a good thing that we are now talking about the textile industry again, and with some seriousness. Although nobody yet knows what the involvement of the Indians would be, or the form that it would take, it is clear that the problems that led to the decline of the industry have not suddenly disappeared.

The financing of the industry would clearly have to be taken seriously, if not through the issuance of the kinds of bonds that the government tried to issue through the United Bank for Africa, then through other means. Many industry insiders also complain about the lack of Low Pour Fuel Oil (LPFO or black oil), which is required by the industry. This, to say the least, is scandalous in an oil-producing country. I would imagine that this is one thing that could be taken care of, given some will to do so. It is almost redundant these days to mention power, transportation and other basic infrastructure. But yes, these are going to be crucial to any resuscitative attempts.

I think there is the potential to grow the textile industry, with some government determination and a push by actors in the textile industry. It should not be forgotten that under AGOA, the United States market is open to Nigeria. Therefore, anyone who invests in production for export can take advantage of that. Nigeria is also a large market, and if one is to take any lesson from the patronage of smuggled products, it is that there is a demand for textile products. This would indicate that production for local consumption could be a profitable venture.

All this optimism is hinged on the belief that the Nigerian government and the textile industry in general are willing to work together to produce an environment in which this is possible. The involvement of the Indians might just be the catalyst that is needed.

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